Property Management Banking and Trust Accounts (Explained by a Banker)

UPDATE: As of November 2020, Seacoast Commerce Bank has merged with Enterprise Bank & Trust. Allison DiSarro and her property management banking team from Seacoast remain intact and run the whole property management banking division within Enterprise Bank & Trust. If you would like to learn more about the merger, watch this recent episode of the podcast where we interview Allison DiSarro and Ken Carteron about the merger as well as Property Management vs. HOA Banking: https://fourandhalf.com/hoa-vs-property-management-banking/ Allison DiSarro from Enterprise Bank & Trust (formerly Seacoast Commerce Bank) joins us today on The Property Management Show to discuss property management banking and trust accounts. Maybe you think you’re fine when it comes to this topic: you’ve done a great job of separating all the funds that need to be separate, and you understand the importance of trust accounts. The problem, however, is not necessarily in what you don’t know. The problem could be in what your banker doesn’t know. Allison worries that your trust account might just be a business account that the bank calls a trust account. If it worries Allison, it should worry you, too. Introduction to Property Management Banking and Allison DiSarro from Enterprise Bank & Trust Allison started out with Seacoast Commerce Bank over 10 years ago. She worked for a branch in Massachusetts and she noticed a lot of property management accounts coming into the bank where she began as a business development officer. This led to a focus and an expertise on serving property management companies and their unique banking needs. All banks look for what’s called a “sticky deposit”. This is money that’s deposited and sticks around. The rents that property managers deposit aren’t sticky; the money moves right back out of the account so owners can be paid. Trust accounts, however, are sticky. The bank holds security deposits and reserve funds. Since property management business was already at Seacoast Commerce Bank and the company’s CEO was dedicated to hiring industry experts for their business banking division, Allison quickly developed an expertise of her own. She has spent years diving deep into trust accounts to find out what makes them special and how to keep them compliant. The question she asked herself was: who are we afraid of? Most property managers are afraid of the Department of Real Estate. If you own a property management company, your main concern is likely that you’d pass an audit if the DRE showed up at the doors of your business. Allison met with auditors and attorneys and became acquainted with FDIC rules and regulations to figure out how to build a division within Seacoast related to property management. She would later on bring this same knowledge and expertise as the head of the property management banking division within Enterprise Bank & Trust (formerly Seacoast Commerce Bank). Now, she’s here to tell us that the DRE audit isn’t necessarily the biggest threat. Trust Account Terminology: What are We Really Talking About? A trust account holds other peoples’ money. The money is held there until a trigger of some kind releases it. When people hear the term trust account, they probably think about family trusts. You might set one up at the bank for your own family. It puts money away for other people, who are your beneficiaries. When we think about property management trust accounts, the beneficiaries are the property manager’s customers who are actually entitled to the money being held there. As the owner of a property management company, you can walk into any bank and open up an account. You have to take some steps to make sure you’re having the right account opened. Your business operating account is easy enough. But, for a trust account,